Bielefeld University, Department of Business Administration and Economics
Doi
Abstract
Dawid H, Zou B. Strategies of Foreign Direct Investment in the Presence of Technological Spillovers. Working Papers in Economics and Management. Vol 12-2013. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2013.In this paper we present a differential game model of two firms with different
technologies producing the same good and selling in the same world market.
The firm equipped with advanced technology is deciding whether to outsource parts
of its production to the home country of its competitor, where wages and the level of
technology are lower. Outsourcing reduces production costs but is associated with
spillovers to the foreign competitor. The degree to which the foreign competitor can
absorb these spillovers depends on its absorptive effort. Using numerical methods
the properties of a Markov Perfect Equilibrium of this game are characterized and
the implications of the variation of different key parameters are examined
